SPECIAL AD HOC COMMITTEE COUNTRY REPORT ON INDONESIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A003000040001-3
• Release Decision: RIFPUB
• Original Classification: T
• Document Page Count: 17
• Document Creation Date: December 23, 2016
• Document Release Date: July 31, 2013
• Sequence Number: 1
• Publication Date: July 22, 1947
• Content Type: REPORT

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COPY NO.
SPECIAL AD HOC COMMITTEE
COUNTRY REPORT ON INDONESIA
22 July 1947
TOtaiFS,4":")
DOCUMENT NO. /
21
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ENCLOSURE
STATE?WAR?NAVY COORDINATING COMITTEE
SPECIAL AD HOC COMMITTEE
SECOND PHASE SWNCC STUDY ON INDONESIA
Reference: SWN 5275
i.ANALYSIS OF THE SITUATION IN INDONESIA
A. Basic Forces
The principal basic forces operating in Indonesia are:
1. Militant nationalism, especially in Java and
Sumatra, led largely by socialists. The socialist?national?_
1st movement has the support of a sprinkling of Communists
and other leftist groups, but their activities, at least
for the moment, seem to be submerged.
2! Efforts of the Netherlands authorities to salvage as
Much as possible of the control formerly exercised in the
Indies under their interpretation of the Linggadjati
agreement signed on Maxch 25, 1947, which accorded the
Indonesian Republie de facto status and envisaged the
emergence of. a sovereign USI and a Netherlands?Indonesian
Union on about January 1, 1949.
3. Antagonisms engendered by the conflict between
the two foregoing forces. These antagonisms prevent the
.eaXly conclusion of necessary economic and political
agreements, which in turn prevents the development of the
natural resources of the .Indies for the benefit both of
Indonesia and the world.
Indonesia is at present divided into two spheres: (a) Java,
. .
Madura, and Sumatra, over which (with the exception of key ports
and towns now occupied by Dutch military forces) the de facto
authority of the Republic of,Indoneeia has been recognized by
the Netherlands; and (b) all other islands of the Indies, known
as the "Malin? areas," which are controlled by the Netherlands
Indies authorities.
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On March 25, 1947, the Netherlands and the Repbulic signed
the Linggadjati agreement, whiph provided for cooperation of the
two parties in the creation. of a sovereign and democratic
United States Of Indonesia composed of at least three federated
states, including the Republic, and the creation of a:Netherlands-
Indonesian Union under Hollandts sovereign. Despite the agreement,
variously interpreted in Holland and in Indonesia, the opposing
aims of the Netherlands and of the Republic have not yet been
reconciled.
As of May 1947 Dutch-Indonesian negotiations had reached a
deadlock. The major obstacle to an understanding appear to bet
(a) disagreement on the Republic's degree of jurisdiction over its
own ecOnomic affairs; (b) the continuing influx of Dutch ground
troops, which now number about 110,000; and (c) Republican
insistence on making economic discussions contingent on reduction
and/or withdrawal of Dutch troops and the lifting of the naval
blockade.
In Holland, as well as in the Indies, there is increasing
pressure from certain Dutch circles to force a solution in the
1
,Indies by military means. A military victory would not, however,
insure peace and order, since a period of guerrilla warfare,
coupled with sabotage and labor strikes, Wouldundcubtedly follow:.
Indonesia is in need of rehabilitation! Dutch authorities
estimate loss and damage resulting from the war at approximately
US $855,000,000, based upon 1942 price levels. More than half
. of this figure represents damage tp the mining industry and
estate agriculture. Damage to land and water transportation
systems is estimated at about $185,000,000. The remainder of the
estimated war losses, approximately $95,000,000, is evenly
. divided between industry and native agriculture. These figures
have not been confirmed by neutral sources. There has been little
or no reinvestment of private capital, except in the Dutch-held
tin and petroleum industries, because of the lack of. established
political jurisdictitns and Policies. Trade from Java and Sumatra,
centers of the export industry, is virtually at a standstill
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because of the Netherlands Indies Governments trade regulations
of January 28, 1947, which are enforced through a blockade of
these islands by the Netherlands Navy.
B, Objectives and Methods of Other Great Powers
Great Britainks interest in Indonesia centers in
restoration of its trade, safeguarding its investments, and
securing Indonesian good will, which is important tc its wider
responsibilities in Southeast Asia. Great Britain pursues a'
policy friendly to both parties and has effectively acted as
mediator in the Dutch-IndoneSian conflict.
China maintains a neutral attitude toward the political
conflict but is concerned with some 1,20.0,000 overseas Chinese in
Indonesia, who make substantial remittances to the homeland, and
is interested in trade with this tropical. area.
The USSR has the same interest in Indonesia that it hes in all
other colonial areas where the policies of metropolitan powers may
frustrate nationalist movements and create am-mg the natives an
atmosphere receptive tr Communistic political penetration. The
Soviet Union uses developments in Indonesia for press and radio
campaigns, stressing Dutch and Anglo-American imperialism. It
does not appear to conduct Communist activities in Indonesia
di:'ecily. The Indonesian Communtst Party, although active and
represented by 35 out of 432 seats in the Republic's provisional
parliament, has little chanpe of gaining predominance: especially
if Dutch-Indonesian cooperation develops successfully.
Australia and India, both potential suppliers of manufactured
goods, ate interested in developing trade and cultural relations
with Indonesia. Australia, mindful of' its own security, for which
it believes a friendly Indonesian population is essential, has shown
a somewhat' stronger sympathy for the Indpnesian, nationalist cause
than for Dutch effort's to reinstitute Netherlands authority. India
. has given the Indonesian Republic every possible moral support and
has engaged in barter trade rith the Republic.
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The Arab League, interested in drawing into its oilbit
Indonesia's. 60 million Moslete, ha S dome Out in favor of granting
the epublic full recognition. So far) however, discussions that
have been conducted with individual countries, especially Egypt,
have not resulted in the establishment of official diplemstic
relations.
a. ANALYSIS OF ASSISTANCE ALREADY RECEIVED
A. Analysis of Political and Economic Premises'on Which
Economip_Lid was Based
Aid extended by the US was based on the recognition of
Netherlands sovereignty over all Indonesia and US desire to speed
the reconstruction of the Indies.
The US has not been willing, however, to aid the Netherlands
by supplying equipment and weapons for military purposes in
Indonesia. US post factum aporoval of the transfer by the British
of lend-lease lethal war material to the Dutch armed forces in the
Indies was given as an exception rather than a reversal of our
policy. It was given under conditions that made recapture of
these weapons practically impossible. One Dutch Marine brigade was
S.
trained and equipped in the US during the war. This brigade waS
subsequently sent by the Netherlands Government to the Indies.
Aid aimed at assisting Indonesia's rehabilitation and re-
sumption of trade involved US disposal .of war surplus supplied to
the NEI Government and the granting of credits to stimulate the
prZduction and flow of copra.from the Indies.
B. Summary of Assistance Given
The financial end other aid already made available to the
Netherlands for the Indies since VJ-day is summarized below:
1. Aid by the US
a. Surplus property credit of
100 million, of which $68,335,314
had been used by May 30, 1947 - $68,335,314
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b. US Commodity Credit Corporation bobk
credit "not to exceed $15 million outstanding
at any one time;" $2,400,000 had been extended
as of May 1947 2,400,000
$5000,000 of this 11S0CC credit is expected to
be utilized in June fat the purchase of
Japanese textiles.'
c. US Civilian Supply Deliveries; (Plan "A"), valued
at approximately $6,500,000 6,500,000
e.
for $20
in full
Lend-leasei
1)
2)
Direct te'NEI -- value Of
non-lethal goods i1i$1000,000
Through UK transfers!
a) Agreed value
lethal goods
b) "Fair value"
equipment?
TOTAL ?
of non- '
..... 1,200,000
?
of lethal
1,500,000 3,700,000
$80,935,314
Procurement assistance through prioritiee
million worth of Mn equipment, paid for
by the Billiton Company, which is partly
NEI Government-owned,.
2. Aid by Other Countries. Financial aid to the
Netherlands for the Indies advanced by other countries may
be summarized as follows:
' a. Sweden -- commercial credit tc be
repaid en December 31; 1948 . . . ...
b. Australia -- for the purchase of
surplus property . .
4,200,000
. 24,000,000
c. Canada -- loan of
. 15,000,000-
*TOTAL
$4-3,200,000
d. Great Britain supplied the Netherlands
with military equipment and trained Dutch troops,
The value of this military assistance in US .
dollars cannot as yet be ascertained.
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C.; Economic Assistance Pending or ConteMolated
In 1945 the Export-Import Bank authorized a loan to
the. Indies of $100,000,000.. This loan has not been finalized,
? however,because of uncertain political conditions and would have
tr be renegotiated.
On June 26,.1947, the US GovernMent offered to discuss
. .financial aid for rehabilitation purposes in the Indies, if such
discussions were sought by a federal government representing
both Indonesians and Dutch..
D. Analyeis of Contribution of This Aid to the Country 6.
Recovery
Economic aid already granted to the Netherlands
authorities for the Netherlands Indies appears to have helped
slightly in the eccncmic recovery .of the Dutch-controlled regions
of the NET. It has not reached the Republican areas of Java,
Madura, and Sumatra, which contains about. 60 at of the 72 million
inhabitants of the Indies and before the-war accounted for
three-fourths or the Indies' foreign-trade.
A considerable portion of US surplus property sOld to the
NET government consisted of wartime installations and army
supplies1 in New Guinea and other areas. This property has con- ?
. tributed little to the economic rehabilitation of the Indies.
Other.Up aid, however, has been effective to some extent in
speeding exPorts of copra and tin from Dutch-controlled areas. -
E. Political Effects of Aid ,
The economic aid that has been given by the US and other
' countries for the Netherlands Indies and the manner in which it,
has been utilized by the NEI authorities. have directly cr indirectly
served to strengthen the bargaining position of the Netherlands
vis-a-vis the Republic and to increase Netherlands military re-
sources in Indonesia. This aid has created the impression among
?
the Indonesians that the Western powers are backing the Dutch.
However, diplomatic pressure upon the Netherlands by Great Britain
and the U$ has been a restraining influence and has moderated Dutch
policies in Indonesia.
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III.. US OBJECTIVES IN INDONESIA
Indonesia is one of the most important regions of Southeast
Asia because of its large population, wealth, and strategic
.location. Indonesia is also in the forefront of the postwar -
nationalist struggle of Southeast Asiatic peoples that. calls for
a readjustment of old colonial relationships. The outcome of
this, struggle and the conditions surrhiunding it will have a
profound effect on the future attitudes of Southeast Asia's
peoples toward the Western deomocraeies on the one hand and toward
the USSR. on the other.
US objectives in. Indonesia must take into account over-all
US objectives in Asia and Europe and also the interrelationship
of Southeast Asia's dependent countries with Western European
democracies,
The prime general objective of the US is a non-totalitarian
Indonesia' friendlyto the West.
Specifically, the US wishes to:
1. Promote a peaceful and equitable implementation of
.the Linggadjati agreement leading to a volunts4r assOciation.
between the Netherlands and Indonesia.
2. Facilitate the reconstruction of the Indies and the
resuaction of non-discriminatory foreign trade and investment
3. Prevent the spread of Communism, Fascism, or other ?
totalitarian. regimes in the area by the political, and
-economic measures suggested above and1-Jor fostering friendly
relations with the US by cultural means.
IV. CONSIDERATION OF MEANS OF REACHING OBJECTIVES
A. Economic Means
Outside economic aid alone will not achieve political
stability. The chief determinant of political stability is the
achievement of Dutch-Indonesian politcal accord. However,
economic assistance, if designed to promote Dutch-Indonesian
cooperation, could speed reconstruction and economic development
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and thus reinforce stability and forestall the emergence of any
form of extremism.
B. .Prlitcal Means
In the present circumstances, political pressure is
likely to be more effective than economic measures. The US.
could continue to exercise pressure upon 'both the Netherlands
and Republican authorities, supplementing diplomatic steps with
economic- measures.
? C United.NrYtiOns Assistance
The ways in which the United Nations and its specialized
'agencies may be brought into relationship'with United States aid
programs are set forth in the Addendum to SWNCC 360, dated
April 24, 1947. The Position of the Department in this regard
should be considered in the light of the program as a whole
rather than in the reports on individual countries.
D. Information and CUltrual Means
American policies should be supported by a vigorous
public relations program. The disseminvti:on of Information,
combined with an exchange of persons, will familiarize Indonesians
and Dutch with American policy, democratic processes; techno-
logical methods, and scientific and cultural developments, thus
preparing the way for cooperation with the US and contributing
to the rehabilitation and- development of- Indonesia.
E. Military Means
No military assistance to either side is contemplated.
V. MAGNITUDE, NATURE hND TISING OF THE MEASURES REWIRED WITHIN
THE NEXT THREE TO FIVE YEARS TO REACH THESE OBJECTIVES
A. Economic Measures
ti Dutch-Indonesin cooperation is assured, the Indies
might in the course of the next three years be able to meet
without foreign government loans itS own minimum import require-
ments to (a) alleviate the most acute consumers' goods shortages,-
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(b) provide incentive to production and trade, and (0 restore
essential governmental services and public utilities to the ?
minimum extent necessary for a gradual recovery of production.
However, the process of rehabilitation. would be substantially
speeded end political stability reinforced by financial aid'
geared to pOlitical developments. It is estimated that for this
purpose credits of the general magnitude of 150 to 200 million
. ?
dollars would be required, mainly tr., effect the speedier re-.
construction of transportation, utilities, and processing
industries essential for the revival of trade, which in turn
will contribute to stability.
The timing of extension of Credits must be geared to
strengthen Dutch-Indonesian cooperation progressively and will
depend on future developments in Netherlands-Republican relations,
B. Politcal Measures
Should the Dutch-Indonesian deadloch cy.ntinue and the
tensions grow, the US may be called upon to offcr Its gcod
offices, to mediate, or to arbitrate.
C. United Nations Measures
At an appropriate time, the United States should favor
the admission cf the US of Indonesia to membership in the
United. Nations. Membership in the United Nations and in its
related agencies offers a number of advantages that will help
in maintaining the economic and political stability of Indonesia.
The most important of these advantages are:
1. Members of the United Notions hove easier accesc
the organs of the United Nations and to its related agencies
and broader rights of participation in the proceedings Of
such organs and aroncies than states that are not members
of the United Nations.
2. Since Indonesiala economy is in large measure
dependent on international trade, it is desirable that the
fullest advantage be taken of those facilities of the
United Nations and its related agencies that are concerned
with economic cooperation.
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. 3. After admission to membership,.IndrneSia may be
expected tfl render general support to United States
.
policies in the United Nations.
' T. Cultural Measures
The present US program, which provides for one library
at Batavia and one at Soerabaja, should be extended as. soon as
conditions:permit to include at
capita/ of the Republic, one in
and one in Borneo. In addition
least one US library at the
Sumatra, one
in East Indonesia,
to' supplying reading materials
for the Public, the, libraries should provide
a general information
service regarding the US. Motion pictures and filmstrips
should be shown to Selected groups, especially to educational
and professional organizations. The local press should be
serviced with information regarding the policies and activities .
of the US Government, including texts of important speeches,.
documents, and other pertinent information. This information
should also The distributed to government officials and key
intellectuals throughout Indonesia. The absence of any-American-
controlled news service in Indonesia at present makes this service
all the more necessary.
The exchange of US and Indonesian specialists, technicians,
and scholars should be intensified with a view to assisting
rehabilitation as well PS to furthering understanding between the
two countries.
The Fulbright program, if consummated, will providefunds
for educational activities in Indonesia that can be financed by
local currency. The program provides for research, ,study and
teaching in Indonesia by American scholars and specialists.
VI. PROBABLE AVAILABILITY OF ECONOMIC AID FROM EXISTING SOURCES
UNDER PRESENT POLICIES
A. US Sources
The Export-Import Bank has earmarked $100 million for
use in the rehabilitation of. the Indies. However, this credit
was never crnsummated and the extension of. the credit mut await
renegotiation. Such reneg;otiation will, of ccurse, take into
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consideration the political situation and evidence 'of financial
responsibility on the part of the debtor. 'It is not anticipated
that US Government sources will grant any additional credits
within the next three years
B.
Other Countries
Canada, at the time it extended a $15 million credit
in 1945, indicated that it would be willing to consider a request
for an aaditinnal $50 million on the same terms. However, there
have been no recent indications of any further action on the
matter.
C. International Sources
L
The World Bank might be in a position to exend a loan
of $100 Million during 1948 or 1949 if the Netherlands is willing
to guarantee the credit.
VII. ADDITIONAL MEASURES REQUIRED FRW THE UNITED STATES -
A. Expansion of US Remresentation in Indonesia
In conjunction with political and economic measuree,
the US needs to strengthen its diplomatic representation in
Indonesia by appointing a sufficient number of officers to
observe political, economic, and social developments in the
various areas and to report on the utilization of such aid as
may be given.
VIII. NATURE OF ARRANGEMENTS TO1INSURE ACCOMPLISHMENTS OF US
OBJECTIVES IN TAKING SUCH MEASURES
Any US financial assistance must be so arranged as not to
defeat the US objective of promoting cooperation between the Dutch
and Indonesians. .Only a comprehensive Netherlands-Republican
agreement on the main political and economic issues can insure
the effective utilization of US aid for the rehabilitation of the
country. Aid extended prior to such an agreement to either of tho
parties may have political consequence contrary to US objectives.
Posti-agreement aid must be based en arrangements acceptable to
both parties..
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In accordance with customary Export-Import Bank procedure,
any loans should be advanced only rm the basis of specific
projects
Care must be taken to insure that loans to the Netherlands
for use in the homeland are not diverted to promote Netherldnds
military efforts in Indonesia.
IX. EFFECTS UPON INDONESIA AND UPON US FOREIGN PdLICY OF US
REFUSAL TO, GRANT AID OR OF FAILURE OF PROGRAM UNDERTAKEN
US refusal to grant economic aid for Indonesia befcre
comprehensive Mitch-Indonesian agreement has been reached may
hasten the achievement of such )an accord. Refusal to aid after.
Dutch and Indonesi.en cooperation in an interim federal government
has been demonstrated might endanger its success. Such a refusal
would delay the rehabilitation of the Indies and the resumption
of trade, Retardation of recovery and Consequent continuing
low standards of living'would contribute to discontent and local
unrest. It may also diminish the opportunities of the US to
obtain strategic materials.
Failure of a US program for politically stimulating Dutch-
Indonesian voluntary cooperation and association and aiding in
the rehabilitation of Indonesia would mean a sharpening of the
Dutch-Indonesian conflict, possibly resulting in a local war and
increased Indonesian antagonism-toward the Western'powers. From
a long-range point of view, an Indonesian population hostile to
the Western powers would make 'Indonesia particularly vulnerable
in the event of war. A friendly and prosperous Indonesia might
have great value ae an arsenal in the Pacific.,
X. POSSIBLE EMERGENCY SITUATION WHICH SHOULD. BE ANTICIPATED AND
RECoMENDED COURSE OF ACTION
The outbreak of serious Dutch-Indonesian hostilities might
create a critical situation affecting the whole relationship of
Western democracies with the peoples of Southeast Asia. Should auj
other efforts to find a solution fail, the US might find it
advisable to take the initiative in bringing the situation to the
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attention of the United Nations and thus forestall its presentation
for propaganda purposes by the Soviet Union or one of its
.,satellites.
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APPENDIX
SECOND PHASE .SWNCO STUDY OF INDONESIA
SU/SiA7,y
Indonesia is at present suffering from the effects of four
years of Japanese occupation, followed by nearly two years of
politicial upheaval. An estimate of lose and damage resulting
?
from the war is $855,000,000. The pre?war trade of, the islands
is nearly at a standstill; transport facilities, communicatiOns,
agricultural and industrial enterprises are badly in need 01.
rehabilitation. .
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Preventing thus far any 'large?scale economic recovery in
the Indies, the political differences between the Republic of
Indonesia, which has emerged since the war as the nationalist
government controlling -Java, Sumatra and Madoera, and the
Netherlands Indies Government are not yet fully resolved. While
the attempt on both sides has been to Work out a settlement by
.oeaceful means, negotiations have frequently broken down during
the past 18 months, and the country has,more than once' seemed.
on the verge of widespread hostilities. In March 1947, the
Netherlands and the Republic signed the Linggadjati Agreement,
. which provided for cooperation of the two parties in the ultimate
creation of a. sovereign and democratic United States of Indonesia
composed of at least three federated states, the Republic,
East Indonesia, and West Borneo. Little progress has thus far
been made in implementing this agreement, although indications
are at present that agreement has been reached in principle,on
the formation of an Interim Federal Government over which the
Netherlands will exercise determinink control until creation. of
?.
the projected sovereign United State S of Indonesia and a
Netherlands?Indonesian Union by January 1, 1949.
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Great Britain's interest in Indonesia centers in restoration
of its trade, safeguarding its investments and securing Indonesian
good will. China has maintained a neutral attitude towardthe
political conflict. The Soviet Union has used developments in
Indonesia for ;Press and radio compaigns, stressing Dutch and
Anglo-American imperialism. The USSR does not appear to conduct
communistic activities in Indonesia directly. Australia and
India are interested in developing trade and cultural relations
with Indonesia. India has given the Indonesian Republic much
moral support, as have certain countries of '61e Arab League,
Aid extended by the U.S. was based on the recognition of
the Netherlands' sovereignty over all Indonesia and the U.S.
2_ desire to speed the reconstruction of the Indies. The U.S. has
not been willing, however, to aid the Netherlands by supplying
military equipment for use in the Indies, and has persistently
urged a peaceful settlement. Aid in the form of goods and credit
extended by the US. to the Netherlands for the Indies since
VJ-Day has amounted to approximately $80,000,000: Aid extended
by other countries has amounted to approximately $43,000,000.
In June 1947; this Government offered to discuss financial aid
, for rehabilitation purposes in the Indies, if such discussions
were sought ,by a federal government representing both Indonesians
and Dutch. This offer was based on a $100,000,000 fund in the
Export-Import Bank which was earmarked for the Indies in 1945.
A prime general objective of the U.S. is a non-totalitarian
Indonesia, friendly'to the West. We believe this can best be
accomplished by a peaceful and equitable implementation of the
Linggadjati Agreement leading to a voluntary association between
the Netherlands and Indonesia and by facilitating the economic
reconstruction of the Indies.
The most effective means of achieving the objective of the
US in Indonesia appears to be through financial assistanDe designed
to promote Dutch-Indonesian cooperation, It is estimated that
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credits of the general magnitude of 150 to 200 million dollars
would be required, mainly to effect the speedy construction of
transportation, utilities, and processing industries essential
for the revival of trade, which in turn`will contribute tc
' political stability..
The Export?Import Bank has earmarked 100 million dollars
for use in the rehabilitation of the Indies.I This credit must
be renegotiated after political stability has been achieved.
It is not anticipated.that this Government will grant any credits
additional to this within the next three years. The World Bank
might consider the extension of a loan to Indonesia during 1948
or 1949 if political conditions warrant.
Any U.S. financial assiatance must be so arranged as to
promote the U.S. objective of securing co'operation between the
Dutch and Indonesians. Only a comprehensive Netherlands ?
Republican agreement on the main Political and economic issues
can insure the effective utilization of U.S. aid for the
rehabilitation of the country. Refusal to Aid after Dutch and
Indonesian cooperation in an interim federal government has
\.
been demonstrkted would delay the economic rehabilitation of the
country to the point where it might become prey to a totalitarian
form of governmenthostile to the Western Democracies. ,
vgiewoodIntS6
Appendix
Declassified and Approved For Release 2013/07/31 CIA-RDP78-01617A003000040001-3